Snow Crab Overview John Sackton Seafood.com Moncton, NB, January 15, 2008

Transcription

1 Snow Crab Overview 2008 John Sackton Seafood.com Moncton, NB, January 15, 2008

2 Background 11 years providing analysis of snow crab production and markets - in Canada, Alaska, the U.S. and Japan Focus has been on Newfoundland snow crab and Alaskan snow crab. Have not worked directly with Gulf industry before. 2

3 Outline for today Profile of Global Supply Review of cyclical nature of snow crab prices Recent price history and market trends Product forms and consumption patterns Outlook for

4 Snow crab is a shellon product hoto: Red Lobster Photo: Charm crab Co. 4

5 Value added products US Market: little value added except crabmeat Japan: most brine frozen product processed into crab meat for sushi and other dishes shabu shabu 5

6 Snow crab in global market 6

7 Canada has 61% global landings Snow Crab Production US 11% Canada Japan 5578 Russia 17% Korea Korea 8% Japan 3% Canada 61% Russia US

8 Four Year US Supply Chart 2004 Kilos 2005 Kilos 2006 Kilos 2007 (est) Canada 40,642,443 37,756,908 34,000,000 40,000,000 Other Snow 8,452,765 8,218,033 7,000,000 8,000,000 Imported King crab 10,552,793 18,391,132 26,000, Ak snow 3,469,500 4,176,000 6,204,960 6,700,000 Ak King 2,100,000 2,340,000 2,100,000 5,448,000 Dungeness 17,460,000 22,500,000 18,980,000 11,658,000 82,677,501 93,382,073 94,284,960 98,806,000 8

9 US crab consumption Growth in U.S. crab consumption Lbs per Capita Only wild caught species showing growth 9

10 Japan snow crab product forms 10

11 Japan section market 11

12 Japan snow crab supply

13 Outlook for 2008: slightly increased snow crab supply; stable 13 dungeness, decreased king crab Summary of supply issues Canada will continue to be the primary source of snow crab for U.S., and 2nd most important source for Japan Increase in Alaska quota in 2008 adds 11,000 tons new production, or about 11% of Canadian total. Snow crab is the major part of shell-on crab market in U.S % Crab Consumption continues to grow in U.S., driven by Asian swimming crabmeat Japan market remains important: 25% of frozen sections from Canada, 70% of crabmeat from Canada via China

14 1/2/07 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 Pricing issues: volatile market 15 year Price History for Snow Crab AK 5-8 CA 5-8 1/2/93 1/2/94 1/2/95 1/2/96 1/2/97 1/2/98 1/2/99 1/2/00 1/2/01 1/2/02 1/2/03 1/2/04 1/2/05 1/2/ /2/92

15 Recent price history 5 year Price History for Snow Crab $5.50 $5.00 AK 5-8 CA 5-8 $4.50 $4.00 $3.50 $3.00 crab seasons $2.50 $2.00 $1.50 1/4/02 4/4/02 7/4/02 10/4/02 1/4/03 4/4/03 7/4/03 10/4/03 1/4/04 4/4/04 7/4/04 10/4/04 1/4/05 4/4/05 7/4/05 10/4/05 1/4/06 4/4/06 7/4/06 10/4/06 1/4/07 4/4/07 7/4/07 10/4/07 15

16 What makes crab prices cyclical Wh Both U.S. and Japan markets very elastic: when prices go lower, they buy more In any given year, one market or the other will be the price setter-- where buyers feel most confident about crab Strong demand in one market can magnify problems in the other market 16

17 When Japanese demand is strong Japanese buyers make deals that set crab price in Newfoundland for brine crab US foodservice and retail buyers must match Japanese price to secure product Example: 2004 High U.S. inventory, but Japanese buying kept prices higher than they otherwise would have been 17

18 When Japanese demand is weak Japanese buyers wait to see U.S. price established and then determine their interest; buy only amounts they feel they can sell at U.S. set prices Example: 2005 Market price dropped $1.00; weak U.S. demand and weak Japanese demand, as they thought prices were still too high 18

19 US Demand Foodservice purchases: dominated by Darden; major buyers include Sysco Houses, U.S. Foodservice, distributors demand tends to be relatively steady; volume adjusts to price Distributors tend to set price based on cost; do not adjust street prices until old high priced inventory is sold Major users include Casinos, Asian style buffets, casual dining Retail: major users of U.S. snow crab but when prices go over $4.00 volume is cut back significantly, and other substitutes used for crab promotion 19

20 Example: 2006 Prices reduced drastically due to Alaska selloff of inventory US Buyers, especially retail, convinced of market bottom; saw snow crab as huge value, demand soared. Japanese demand soared as well, based on lower price Strong demand quickly drove up prices in 2006 and continued into

21 Elements of Price Cycle High to Low: Retail cuts back on purchases; fewer crab promotions because it is too expensive Foodservice street business drops off, they build inventory Japan buys lower amounts of crab, due to high price Result: oversupply leads to competitive discounting, pushing price downwards. This trend can continue for 21 more than one season.

22 Price Cycle: Low to High Low prices attractive to retail buyers, many plan large volume snow crab promotions Japanese increase their purchases based on favorable prices; often extending contracts mid-season, leading to less U.S. supply Foodservice anticipates good sales, sees inventory and availability as low Result: Rapid bidding up of prices for available crab (2006, 2007) From May 2005 to July 2007 section prices went from $2.80 to $

23 We are on high side of price cycle retailers cut back purchases significantly Japanese bought less crab in 2007 than in 2006 Foodservice sales are slow; many distributors have crab in inventory 23

24 Market Outlook for 2008 Plenty of crab inventory still held. Mystery is what happened to crab that retailers did not buy last year Alaska snow crab is doubling in volume; many Alaskan sellers expect prices to weaken Most factors point to some, but not drastic, downward price movement 24

25 Factors that strengthen US dollar weakness forcing Prices Canadian companies to hold to a firmer $US price Prices of substitute products are rising: small king crab more expensive and this had been retail favorite. Dungeness volumes are low and prices remain high - over $5.00 Demand and consumption of crab is still strong Japanese crab supply from Russia is 25

26 Factors putting downward pressure on prices Weak U.S. economy could hurt foodservice sales Crab Inventories may be larger than expected Alaska snow crab will be coming steadily into market between now and April 26

27 Product forms: Chionoecetes Crabs 27

28 Crab sections are a commodity product Substitutes for sections come into play when prices are high Crabmeat is now mostly an offshore product, packed in China or Thailand, and shipped back to the U.S. market. Hand picked meat is better quality than water processed meat. Specialty products have some room to grow when raw material cost is suitable 2 lb retail packs are viable at a $9.99 retail price Whole cooks are important for Japan market 28

29 Snow crab consumption patterns are stable US Asian buffet Casual dining (Darden) Casinos Retail Sales Japan Sushi leg meat (extracted in China) Pot meals (shabu shabu etc) year end gift packs tourist market for blast frozen crab In Japan, both mass retailers and foodservice chains, like sushi bars, are important buyers of snow crab. 29

30 Exchange rates Strong $CA dollar has huge impact on crab industry will magnify the problems of any $US price weakness Japanese exchange rates with the dollar are relatively stable; should not be an abnormal factor in pricing 30

31 Future Challenges Ecolabeling? Is it suitable for the crab industry Cyclical nature of resource: Alaska crab on upswing Need to make snow crab a higher value item - currently it is not a luxury item like king crab or lobster. Expand snow crab sales to new markets, such as Europe 31

32 2008 summary 2008 should be a good year for the crab industry, but the industry will have to adjust to somewhat lower prices, with all the exchange rate problems that entails. Cyclical factors are pushing market lower; but underneath there is a strong demand for crab. This underlying interest should sustain the market for this coming year. 32